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Business & Economy

The cedi has been named one of the three best-performing currencies in Africa against a strengthening US dollar.

The cedi has been named one of the three best-performing currencies in Africa against a strengthening US dollar.


In its latest report, released on Monday, June 18, the global investment bank Renaissance Capital identifies the two other notable currencies as the Egyptian pound and the Ugandan shilling.

The report comes at a time when former President John Mahama and his National Democratic Congress have been making frantic attempts to create the impression that President Akufo-Addo’s government has been a poor manager of the economy.

Confronted with hard facts which point to superior management of the cedi by the Akufo-Addo government, NDC spokesmen on economics have remained adamant.


                                          ‘Decent’ reserves


In 2001, under President John Agyekum Kufuor, the cedi depreciated by 5%; under President John Evans Atta Mills it depreciated by 15% in 2009, the year he assumed office. It depreciated by 14.5% under Mahama in 2013, and by 4.9% under Akufo-Addo in 2017.

According to the Renaissance Capital report, “A strengthening US dollar and possible further [Federal Reserve] rate hikes to come imply [emerging market] currencies are vulnerable to depreciation.

“The African currencies that we believe will hold up in this environment are undervalued, in countries with positive real interest rates and decent FX reserves. We think the Ghanaian cedi [international currency code: GHS], Egyptian pound (EGP) and Ugandan shilling (UGX) fit these criteria,” the report says.

Assessing the vulnerability of African currencies, the report looks at how misaligned they are from their fair values, using real effective exchange-rate model; real interest rates on countries’ respective 91-day Treasury bills to weigh up the prospect of foreign inflows; and import cover in comparison to the IMF-recommended three months.


                                          ‘Well supported’


Ghana’s forex reserves improved significantly in May to $8.1bn, or 4.4 months of import cover, on the back of the success of the recent Eurobond. The report believes this buffer will provide support to the cedi.

“We believe the currencies that are well supported – and inclined to appreciate, in real terms – are undervalued, in countries with positive real rates and over three months of import cover, most notable of which are the GHS, EGP and UGX,” the report says.

According to the report, an “undervalued currency”, coupled with “positive real interest rates and decent reserves, imply the GHS is well supported”.

It adds: “We believe positive real interest rates on local Treasury bills, and 4.4 months of import cover will provide support to the GHS.”

The report acknowledges that Ghana’s falling inflation has helped improve its real interest rates, particularly over the past 12 months.

“Although we think that inflation has now bottomed in Ghana, we do not expect real interest rates to deteriorate, in part because we expect inflation to move sideways in the 10-11% region, in the short term, but also because the ongoing fiscal consolidation mutes the upside pressure on interest rates from government borrowing,” the report adds.


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